The Dividend Cafe

Today's Post - https://bahnsen.co/48qpYnM Status of the shutdown – Speaker McCarthy is trying to split enough of the far “right” (I hate that term applied here) to avoid a shutdown. He’s currently attempting to package several appropriations bills together and send them to the House for a vote. The votes appear to be questionable as to whether or not they will be there, and this does not avoid a shutdown. These bills, IF passed in the House, have no chance of passing in the Senate. There appear to be enough votes in the House against any form of continuing resolution whatsoever that keeping the government open past this weekend is highly unlikely. How it could play out: Option 1: The House passes a bill this week, the Senate amends it (to put it mildly), the House then rejects that, the government shuts down, a deal happens to end that, and Speaker McCarthy ends up removed from his post; OR, Option 2: No bill is passed out of the House, the Senate passes a bill, a deal is cut between House moderates and Democrats, and a shutdown is averted (with McCarthy likely removed shortly thereafter) I think Speaker McCarthy has moves to help avert a shutdown or, more likely, end one after it has started (see above). In both cases, I think he greatly improves his chance of being removed as Speaker. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3EPBStR Actually, the inspiration for this week’s Dividend Cafe is not “why markets were down this week or this month” – but rather something more substantial and thematic. There are some “whys” that are more important than “whats” right now and big picture, I felt certain macroeconomic themes we are watching were worth a whole Dividend Cafe. That verbiage makes it sound kind of boring, but really, I am just under-selling the excitement of what lies ahead for those who jump into this Dividend Cafe … You will not want to miss the drama and fun. Off we go Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/48s8IyG The violence was most felt in the bond market as yields rallied dramatically at the long end of the curve. As yields did not move much (or at all) in the short end of the curve, you saw a fair amount of inversion eroded. It is all a rate story now – as stocks are following bonds, not vice versa. QT is tightening, and high rates are tightening (with the bond market doing more of it for them). Something has to break eventually. The Bank of England also left its interest rate alone, pausing after 14 consecutive increases. The House GOP was four votes short of having the votes needed to advance their compromise funding bill. Some tweaks are in motion to allow for a new vote next week. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/44YX2Am The Fed basically was explicit in tying their “we need to stay restrictive” posture to the resilient economy (which, unfortunately to them, has been “expanding at a solid pace”). The market was up +200 points before the announcement and press conference, it dropped -100, rallied back +100, then dropped -150 (so still up over +50 points) before closing down -77 points (but with the Nasdaq down -1.53%). Bond yields at first barely moved but then the short end moved up five basis points and the long end flattish. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3LvZG9P Oil hit a ten-month high this morning. Bonds continue selling off as yields continue rallying. Japanese ownership of Treasuries increased by $7 billion on the month, while Chinese holdings decreased by $13 billion. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/44YIrFd Nothing like the Monday DCT with a great deal of stuff for you today about housing, policy, the economy, markets, and more! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3r79obX Thursday afternoon I received an inquiry through the “questions” portal whereby a reader asked “how one is supposed to go about selecting a financial advisor” – attaching to the question the appropriate sub-questions around trust, qualifications, needs, and services. I know I have addressed this topic over the years but I think it has been at least five years if not longer, and it is a topic that you may be shocked to hear I have many opinions on. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3EGfov8 The European Central Bank (ECB) raised their rate to 4%, and bond yields FELL (go figure) – mostly because markets price in today what they believe about the future. Job hirings have slowed, but job firings have too. We live in interesting times. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/44MsGRn Today was a heavily anticipated news day for markets, with August CPI coming largely in line with expectations at .6% on headline inflation for the month and 3.7% year-over-year. As we had expected, higher energy prices moved that headline number, with gasoline specifically up 10.5%, which accounted for almost half of the total move higher in CPI. The Fed pays more attention to core CPI (ex food and energy), which was up .3% on the month and stands now at 4.3% y/y. All said, we got about what we had expected today: decreasing shelter costs offset a rise in energy prices to some degree, and Fed futures didn’t budge much. Yields were up a few basis points across most of the curve, and stocks held in. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3PExy76 Mexico has the strongest currency in the world this year. Its stock market is on fire (near the best in the world this year), It has overtaken China as the biggest supplier of goods to the United States (did you know that?). Direct investment from foreign countries into Mexico is up +40% in 2023 alone. Do you see why I refer to “near-shoring” as much as “on-shoring“? The diminishment of supply chain dependency on China in the United States is happening. But it may prove to be much more of a Mexico story than a Rust Belt story. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4680dH4 The first thing I will say before delving into this September 11 edition of DC Today as I sit here in New York City is that I honor those who were killed that day, and I will never, ever forget the atrocity that it was. I have written about this day in a very special Dividend Cafe before (I encourage you to re-read it), but regardless, whether it has been 22 years or when it is one day, 52 years, I will never, ever forget. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3PxghfG Today, I would like to use the last five years to make some broader points about the realities of investing. Evergreen realities are, well, permanent. Yet we find within the last five years some serious bold-faced reiteration of these realities to which I refer (and as you will soon see, there actually is a particular single reality most on my radar this week). So, in this week’s Dividend Cafe, we will look at the last five years and extract from this little short-term window some big-picture lessons that are sure to matter for more than just the last five years. Consider it part “History” (albeit recent history) and part “Investing 101” … Jump on into the Dividend Cafe! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/466evrH Markets acted a little more 2022-ish today, with defensives all up and Technology way down. Reports of a Chinese iPhone ban from government departments took a toll, and the U.S. dollar may be headed to its eighth consecutive weekly increase (longest streak since 2005 if it holds). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3LcqThy Oil is the story of markets yet again, with Brent now passing $90 and WTI Crude passing $87. The idea that oil was between $65 and $75 for months and we did nothing to help re-fill the Strategic Petroleum Reserve is just surreal to me. These prices at now 10-month highs are sure to exacerbate the delta between core and headline inflation in the months ahead. Just 37% of companies in the S&P 500 were above their 50-day moving average this morning as internal momentum continues to dissipate. China and Japan are not happy about the dollar’s recent rise and are pledging decisive action to arrest their own currency’s drop relative to the U.S. dollar. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3r2cE8d This is the kind of DC Today I love love love writing – where I really get to absorb a lot of material and bring pen to paper (or finger to keys) in all categories. I always loved this format the most, and being able to do this long-form version once a week is a true joy for me. Doing it every single day as I did for quite some time (though today’s is fuller than even the old format normally was) just became way too much, and I do hope the new program (long-form once a week, shorter form with daily podcast/video three times a week, Dividend Cafe on Friday) is working for everyone. I certainly solicit feedback about that. But in the meantime, enjoy this first post-Labor Day “fall and football are here” version of the DC Today. Note the deep dive into Public Policy and Housing (with all categories covered). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/487nJFU So you may have seen in yesterday’s DC Today that my plans for an out-of-country few days with my wife this week, unplugged from work and electronics, was foiled yet again, this time by Hurricane Franklin. We have a running list over the last nearly 25 years of that which has prevented such an “unplugging,” and truth-be-told, we just are what we are. It seems to be a bigger focus to others that we “relax” and “take it easy” than it is to us. We accept this is a full-time job. But yes, it was not the week we had thought was coming. This week’s Dividend Cafe is the Dividend Cafe I thought was coming, though. A long list of really thoughtful questions is worked through covering such topics as the Fed, private credit, growth investing, the U.S. dollar, Saudi Arabia, the 2024 election, municipal bonds, and so much more. It is a lot of fun and sure to offer something for everyone. So jump on in to the Dividend Cafe. There may be a hurricane in Bermuda, but there is clarity, perspective and answers, in this place where we belong. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/47WCxH3 I arrived back in California late last evening with Hurricane Franklin having cancelled our previously mentioned trip out of the country. Joleen and I replaced it with a couple days away at our place in the Hamptons, not exactly unplugged, but not exactly fully working. Maybe the notion of a true work-free unplugged trip will happen some day, but I have to say, so far, a pretty comical list of sincere attempts to see it happen have been tried and failed. I am very grateful to Brian Szytel for the last three days of DC Todays and I am back in the California office today and happy to be back with you. We are up to an 89% chance in the futures market of a rate hike at the next Fed meeting in late September, and a 54% chance of no hike at the meeting after that in November. The five-year inflation breakeven priced in the TIPS market is 2.16%. Atlanta Fed President, Raphael Bostic, cautioned against the Fed over-tightening and said current Fed policy was “appropriately restrictive.” Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3sAjvX7 Futures looked like we were going to give a little back from the move higher the past three days until about 830AM EST when we got a slew of softer than expected economic data, and since bad news is the new good for markets, moved us back into positive territory on the day. Q2 GDP was revised a little lower, ADP Payroll came in weaker than expected, and the part that is actually good news (meaning not a number showing our economy quite as fast as we thought and less people are finding jobs), Core PCE came in lower than expected for Q2. After yesterdays softer job openings and then today, fed fund futures are slowly tilting back towards peak rates but we are still at 55% pause and 45% hike for Nov/Dec. A good amount of numbers below for you, and a better amount of walking through it all in the video podcast link. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3L3fHUy The third up day in a row in markets today in a broad-based rally that closed at the high. The S&P 500 is still down 2% for the month, but with three trading days left in the last week of summer, we’ll see if we get a little more back before Labor Day weekend. Yields were lower across the entire curve today, with treasuries rallying following a much lower-than-expected July JOLTS new jobs report. Following yesterday’s underwhelming market response to stimulus, China is considering having its major banks decrease mortgage rates on about 38 trillion yuan ($5T) worth of existing loans which moved markets there up 2% on the day. Whether those efforts will prove effective will have to be seen, but I do think it’s putting a bid in global energy prices, which were up again today. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Pe4vqK Brian Szytel takes on DC Today through Wednesday, so we leave you in his capable hands! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Pe4vqK The right thing to do with Dividend Cafe the weekend USC football season is beginning is just replay last year’s edition over and over again, one of my favorite Dividend Cafes of all time … But alas, I have never rehashed old material for a Dividend Cafe since this weekly writing began in September of 2008 and I won’t start now. Fresh and new every week is the commitment, so fresh and new you shall receive (no matters how much Fight On it sometimes entails). You may have heard that tbere are other things happening in the world besides USC’s imminent kickoff to their season. As I type Fed Chair, Jerome Powell, is preparing to speak at Jackson Hole, Wyoming. In the last 15 months or so he has raised the federal funds target rate over 5%, something nearly 100% of economists would have predicted would break the back of the economy a year ago. Here we are a year later, and not only is the economy not broken, but markets are not all that distraught, either. They aren’t great. And economic growth is tepid. But nothing has broken. Yet. But we are not exactly out of the woods, either. And in fact one could argue that the damage done from the Fed’s tightening has surfaced (or is about to surface) in less obvious ways. And that is the subject of this week’s Dividend Cafe. Maybe the Fed wants to create 7% unemployment (because, you know, more people unemployed brings down prices). Maybe a lot of economists predict that will happen (and were predicting it 18 months ago). But whether economic recession should happen (it shouldn’t) or will happen (TBD), there are certainly other looming problems that warrant discussion. And for that discussion, you will want to jump in to this week’s Dividend Cafe! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/44urVw5 Nasdaq futures were up over 1% this morning with technology exuberance following NVidia’s big earnings beat last night (the stock itself was up 10% pre market). So why did the stock end up closing just flat? Valuations do matter. We talk about it often but excitement over AI or other shiny object parts of the market get priced in with lofty expectations almost always well ahead of any reasonable realities (aka buy the rumor sell the news). Down day in markets overall in a wide trading range on they day. The Dow was up over 220 points and closed down -373 points. The Nasdaq was up over 1% this morning and closed down -1.87%, and yields were higher across the curve. The Fed economic policy forum started today in Jackson Hole WY, with comments out tomorrow. We had jobless claims come in better than expected, and headline durable goods orders miss, and our August doldrums in markets continued so a few things to walk through in todays video podcast link below. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/44nfT7G Markets caught a little relief today, and the biggest AI chipmaker seems to have hit it out of the park after hours (we’ll see what holds tomorrow). Bonds rallied substantially, and so as bond yields fell, equities rose … There has been chatter about rising credit card delinquencies. Let’s be clear – rising from 2% to 2.6% is an increase, but this is an increase to the average of the last ten years, which is exactly 2.6% since 2011. And for the twenty years prior to that, the average delinquency rate for credit cards was 4.4%. There is nothing, yet, that is concerning or prophetic in the credit card delinquency data. Not yet. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/45fwZGb This was the fifth day out of six that the Dow was down. China is defending its weakening Yuan currency by making it more expensive to bet against it (raising the funding costs makes it more expensive to short). They face a pickle of wanting looser monetary policy to support their weaker economy but wanting a stronger Yuan as their currency has depreciated in recent months. The UPS workers finalized their $30 billion pay raise. How distorted are things in the market right now? The Nasdaq was UP +1.6% yesterday, yet 67% of the stocks in the index were negative. The 2/10 curve is now only 69 basis points inverted (it had been well over 100bps at the peak). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/44nVfEQ A Monday DC Today, the way it is supposed to be today. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/44fYpKv I am not sure it has gotten nearly the press it deserves, but the one economic story that has managed to get the financial press to talk about something besides the Fed’s rate plans and “will we or won’t we” talk regarding U.S. recession has been the state of China’s economy. Don’t get me wrong – it has hardly been barn-burning stuff, and press coverage has been limited to more substantive financial media (as opposed to the news that everyone watches, reads, and clicks). But there is increasing conversation about the state of China’s economy and what that means to the rest of the world. If the coverage was merely, “China’s economy is not good,” it would be a pretty boring story. One of the reasons the story has a little interest to people is that after two years of hearing nothing but the “inflation” word when discussing places like the United States, the United Kingdom, and the European Union, the Chinese economic conversation is carrying with it the word “deflation” – and that seems to have people’s ears perked up (even those who have no idea what it really means). In this week’s Dividend Cafe we are going to take a look at the state of affairs in China and offer a little forecast as to where they may be headed. More important than current conditions, as I see it, is what they plan to do about it all. I will propose in the Dividend Cafe that China’s response will be every bit as relevant to the United States (and the rest of the globe) as it will be to China. So jump on in to the Dividend Cafe, and let’s see if “Chinafication” is about to be a buzz word for the rest of the world. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3E5y8nq 10-year yields rose to 4.29% today on the way towards the October highs of last year at 4.34%, and the yield curve steepened with 2/10’s now at 65 bps. Today we saw jobless claims come in slightly better than expected and an upside surprise in the Philadelphia Manufacturing Survey data, both supporting higher growth expectations which is what moved rates on the long end for the day. Even though stocks and bonds sold off today, I am sticking with good economic news and still being good myself. For all the back and forth on where rates will go, what the Fed will do, and will those things need to get restrictive enough to break something in the economy, so far, it has yet to materialize meaningfully. Keep in mind also that 10 YR rates floating around the mid 4’s, are hardly anything new. The 1960s, 1990s and 2000s all averaged as much, with plenty of positive real growth in GDP. The difference now is we have a vastly expanded global indebtedness paradigm, so the sustainability of how long growth can last along with higher rates comes more into question, and I suspect both will come in as time goes on. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3EicX1X Following yesterday’s dismal economic data out in China and the largest rate cut there in 3 years (mind you, we are only talking about 15 bps), there was some add-on stress revealed in the real estate and financial markets today. One of China’s larger wealth management and shadow banking firms, with over $138B in assets, missed some repayments on some of its investments and is under review. It is too early to tell if more financial contagion will occur definitively, and of course, you have a government there that can act if needed, but having managed client capital through the GFC in the US myself, a declining real estate market followed by several cracks like this in the financial system are eerily familiar warning signs and worth following. I do suspect the likely path is continued easing in monetary policy and, eventually, some form of stimulus to revive the Chinese economy, but since I know David will have more insight in this Friday’s Dividend Cafe on the subject, I will leave it there for now. Interestingly in Asia, however, is Japan’s economic resurgence. Japan’s GDP last quarter was up a shocking 6% q/q on exports (recall how weak the Yen has been), which was the best organic reading since 2015. Going around the horn to the US, we had Fed minutes released from July’s meeting, leaving further potential rate increases on the table and some better-than-expected housing and industrial production numbers out. So what do you get with such a divergent economic paradigm amongst the first, second, and third largest economies of the world? Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/44d1yL0 One of the things I used to get most frustrated by in the 2000-2007 period of artificially low interest rates, or 2010-2016, or 2020-2022, is how people assumed a central bank reducing rates was a good thing, when the only reason the Fed was doing it was because they believed things were bad. In other words, yes, a rate cut or low rates may (in many cases but not all) boost asset prices, but if the rate cut is coming because of fears of economic weakness (or actual economic weakness) there is ample reason to believe the celebration should be delayed. Now, I believe the Fed has rates way too tight right now and I further believe it is for all the wrong reasons. Yet if the Fed were cutting, not because they realize they over-did it, but rather because we were seeing screaming, severe recessionary conditions, does anyone believe that would be a positive thing? The People’s Bank of China unexpectedly cut rates last night because things there are terrible. The Shanghai Composite Index was down -0.49% and the CSI 300 was down -0.31%. U.S. futures dropped -250 points and as I type the market is down -300 points (the final closing numbers are below). The reason risk assets responded negatively to what people intuitively (and naively) think is a good thing (i.e. unexpected rate cuts)? Because the rate cuts are due to things being, ummmm, bad. China’s situation now is case in point. This was the PBOC’s second rate cut this summer. Consumer spending, industrial production, and business investment were all less than expected. And everything happening there is teeing up this Friday’s Dividend Cafe on what I see as pending Chinafication – not the economic softening itself, but the response to the softening and what that creates. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - Economic Front Producer Prices were up +0.8% year-over-year in July (yes, less than 1%). Prices for intermediate processed goods are down -7.8% versus a year ago. The University of Michigan Consumer Confidence Index came in at 71.2 on the month, down a whisker from last month’s 71.6 but up a good deal from the June print of 64.4 I did get a fair amount of inquiry about the news that total U.S. Credit card debt had exceeded $1 trillion last week. That the total number goes up and down year by year is actually the new news, since from 1958 to 1990 it only went up every single year without exception. But people do not realize – throughout the pandemic $150 billion was paid off the balances of U.S. credit card holders (I am sure some of this was use of stimulus money, and some was re-financing mortgage debt at historically low rates). Income and assets have grown more than credit card debt for those who hold the bulk of U.S. credit card debt. And most importantly, debt service payments as a percentage of household income sits below 10% right now. it had been over 13% prior to the financial crisis. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3DPZwWA Four weeks ago, I devoted a Dividend Cafe to the subject of a “dividend growth mentality.” It was intended to, amongst other things, reiterate much of the underlying value proposition for investors in buying companies that return capital to shareholders via dividends and who increase those dividend payments year-over-year. The people who read Dividend Cafe are mostly investors, and all clients of our firm are investors. My interest in dividend growth is investor-centric – that is, how dividend growth accrues to the benefit of our clients. And yet, as became clear to me from a couple of letter-writers in the aftermath of that Dividend Cafe, there is a sense which it begs the question to ask why it is good for investors to receive dividends. Don’t we first need to understand why companies, themselves, pay dividends? Would the benefit to us as investors matter if there were no benefits to the companies? Or is this whole thinking sort of confused? Well, one thing I can promise you – you won’t be confused on any of this after you jump into this week’s Dividend Cafe, where we will seek to unpack this whole subject of companies paying dividends – why they do it, should they do it, and what does it all mean (economically and even philosophically). Let’s be honest, and this is about as fun as it gets. So join me in the Dividend Cafe. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/454dv7h A tad to my surprise CPI came in even lower than expected (+3.2% vs. consensus estimates of +3.3%). The core rate was +4.7% as anticipated. On the month, prices ex-food, ex-energy and ex-the B.S. shelter figure were down -0.1%. Within that +3.2% the shelter component was up +7.8%, as the model shows OER (owner’s equivalent rent) up +7.7% on the year and Rentals of primary residence up +8%. Uh huh. Core goods prices are up +0.8% on the year. +0.8%. The annualized total CPI from the last three months even with the bad shelter data is +1.9%. Shelter is overstating headline inflation by 30% and core inflation by 40% (and I actually think it is mor than that). Month-to-month data is moved by base effects of the year prior and energy prices. As for energy prices, it looks like much of the oil and gas surge was late July and not as captured in this month’s data as I would have expected. Two years ago this exact week the S&P was at 4,450 or so. Fast forward to today, the S&P is at 4,450 or so. But the 10-year yield was 1.32% and is now 4.02%. Would anyone guess that a near tripling of the bond yield would leave the market flat? Now, the Nasdaq is down -8.3% over the last two years, but still, you get the idea. Sometimes facts make no sense unless you have the gift of hindsight. Be careful about applying an investment conclusion to your forward-looking premises. As I always say, it will be hard enough for your premises to come true. It will be even harder for the conclusions that come from your premises to prove accurate. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3YukmEv I think the biggest news of the day was China’s -0.3% consumer price index for the month of July, and it’s -4.4% producer price index. This was the tenth month in a row of wholesale price deflation, but it was the first month in over two years of consumer price deflation. I am dedicating next week’s Dividend Cafe to the subject of Chinafication. In keeping with the message of the last two Dividend Cafes, our “credit watch” has a couple interesting things to note. Earnings were covering interest expense on investment grade loans 9.2x over right before the Fed began hiking rates. They are now covering them 8.2x. This is called the Interest Coverage Ratio and a high one is good (more coverage of the interest expense by the earnings of the company). Now, that number will get all the way down to 6x in recessions (2020, 2008, 2002), so this move down is not dramatic, but it is a deterioration that is worth watching. With High Yield it has moved from about 5x to just over 4x. Across the levered loan world total leverage is up a tad (debt divided by earnings), and coverage of the interest expense by either earnings or free cash flow is down a bit. None of these metrics yet indicate anything broken, yet all of them are modestly worse off than they were 12-18 months ago. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3OoSkpj From what I had initially thought would be a relatively quiet day in markets given the economic calendar, we ended up with a good amount of news to chew through in choppy markets with stocks selling off, a bid in bonds and volatility continuing its week-long climb. China reported softer than expected trade activity in exports and imports, reflecting its continued anemic recovery post-pandemic and further softness in its attempt to shift more towards a consumption-based economy. Following Fitch's downgrade on US debt last week, Moody's joined the downgrade party lowering the credit rating on ten small and mid-sized US banks today, issuing a negative outlook on over a dozen larger banks. Higher rates, an inverted yield curve, and concern in commercial real estate, not to mention the stress earlier in the year with SVB/FRB, all seem well-known at this point, so this felt a bit behind the curve. Stocks traded lower on the news down over 450 points by mid morning before regaining through the rest of the day closing down only modestly. All fully unpacked in the podcast video link below. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Yoorda Greetings from New York City (again). Lots of fun stuff today in my favorite DC Today of the week – the Monday edition (I love Mondays for so many reasons). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3rVTWPV I hope that you found last week’s Dividend Cafe on Credit to be informative and interesting. It’s summertime, and some people are more focused on the beach and the sun than syndicated loans, but not me. The cool factor has never quite been something people associated with me, and if I have to enter the month of August with a double issue of Dividend Cafe on Credit markets, I am going to do it. But it isn’t just for the least cool of us like me – as I mentioned last week, Credit is a sine qua non in our economy. It is not an end for economic activity, but it is a vital part of the means. Oil and gasoline are not the points of driving, but good luck driving without them (okay, fine, or without electricity – the point is the same). The point of last week’s Dividend Cafe was that Credit is both a signifier or messenger about economic reality and, at the same time, a catalyst or influencer on economic activity. I wrote last week’s Dividend Cafe in sub-optimal conditions (I will leave it there) and knew as I was wrapping it up that there was more to say, so I committed to a second part. So consider today some “extra credit” (see what I did there) – and jump on into the Dividend Cafe! Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3QoFycQ Saudi put a further stake in the ground on extending production cuts, and oil jumped over +2.5% as a result (nearing $82 WTI). Again, they cite the silliness of SPR not making any moves to refill (something I spoke about on CNBC last night). Other than 2008 when the world was ending, 2022 and 2023 have seen the highest bond volatility since the 1980’s. This year has actually seen more days of > 10bp moves in two-year treasury yields than even last year did! The higher yield levels in the long end of the curve are the story of the week in financial markets, for sure, though. The 10-year is not back to the 4.35% high it saw last year but it is comfortably over 4% again. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3DGpZpC Fitch (the least known of the three major credit rating agencies) downgraded the U.S. from AAA to AA+, citing growing fiscal deterioration and overall debt burden. Now, you might be thinking, “oh no this sounds really bad,” and certainly anyone who doesn’t think the debt burden in the U.S. is really bad has, shall we say, not let the medication wear off … But on the other hand, not referring to the debt itself – just referring to Fitch saying all this, you also might be thinking, “ummmm, did you guys just return to the office yesterday?” All headlines and Johnny-come-latelies aside, treasury yields laughed off this announcement today. We should note, S&P moved the rating to AA+ twelve years ago. If one were looking to understand financial market responses to U.S. sovereign debt reality, they would be more focused on the ramifications for liquidity in the financial system (Fed actions with easing and tightening and levels of reserves in the banking system) than the ability to repay debt. The latter is simply not a concern. The former is a volatile, uncertain, and unstable tale that ebbs and flows and impacts all sorts of risk assets. The ADP jobs number once again blew out, this time at 324k private sector jobs created in July (versus 190k expected). We shall see what BLS says on Friday. More than 40% of companies in the Russell 2000 (small cap index) have NEGATIVE earnings. Small cap benefits from active management. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3q8RMfd August is off and running! The Dow was up +3.4% in July, nearly half of its total gain in 2023 coming in the month. Both the Nasdaq and S&P were up over +3% as well. Bonds sold off today as yields rallied, and with a weak manufacturing number today, the only reason I can see bond yields climbing today is some expectation (for right or for wrong) that the jobs data will be strong this week. Copper moving higher is not a sign of pending economic weakness, theoretically. Congrats to the U.S. women’s soccer team on their 0-0 tie with Portugal, which enabled them to advance in the World Cup. Yep. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3rQeA3P Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3QipwRU Everyone loves to talk about the stock market. When it is doing well, people assume everything is great (wrongly). When it is doing poorly, people assume everything is terrible (wrongly). Presidencies can rise or fall based on the Dow or the S&P 500. The stock market is at least familiar to most people, even if they don’t own stocks. It has cultural familiarity on top of investment democratization.The same is not always true of the bond market, which is interesting since the bond market is so much larger and more important than the stock market. Interest rates, liquidity, mortgages, the currency of a country, and the monies that fund wars, governments, tunnels, schools, and bridges are all a by-product of the bond market. However, the overall world of “borrowing” (debt to one party, credit to another) covers more than just bonds. The “credit” markets delve into the borrowings that exist to make possible homebuilding, homebuying, home re-financing, commercial real estate, small business loans, big business loans, and so much else. Securitizing the debt around car loans, credit card loans, and even aircraft and yacht loans is big business. Credit is not just a “boring” bond market – it is what makes the world turn into a highly robust and active economy. Capital is needed to fund capitalism, and that capital is, far more often than not, “credit” – not “equity” … Today in the Dividend Cafe, we look at the current state of credit markets and what they teach us about the current state of affairs. Few things are more clear throughout economic history than this: weakening credit markets reflect economic weakness, then create economic weakness. It is a vicious cycle as old as the wheel. And even the wheel probably had someone developing it on credit … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4563eH1 As balanced as Jay Powell’s comments were yesterday in the presser following the latest and potentially last 25 bps rate hike of 2023, markets opened in rally mode taking comfort in his ‘data dependency’ rate path commitment over what could have been otherwise hawkish comments. We then got an entire slew of strong economic data around 830AM EST with durable goods orders, jobless claims, home sales, and most notably Q2 GDP coming in ahead of expectations that brought back the ole ‘good news is bad’ jitters into markets and we reversed course. Bonds sold off across the curve, but more longer than short and the yield curve steepened to -92 bps in 2/10’s. So, while stocks did put an end to a 13 day consecutive advance and the 10 YR is now flirting again with 4%, what we really saw was more support for the soft landing narrative and candidly, if this is what a recession looks like, I’ll take it. All discussed in more depth in the video podcast below, as well as a twofer in Ask David today as an added bonus. Enjoy and reach out with questions. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3rRaJTS The Dow was up for the 12th market day in a row, the longest streak since February of 2017 … (the ancient history of 6.5 years ago, back when I was much younger). Hong Kong and China stocks rallied hard (+4%) as Chinese leadership pledged more “support” for their property sector. What could go wrong? Some “worry” China will “succeed” in fighting their disinflation this way, and that it will leave a global economy too hot and make things harder for central banks. Some people, though, are idiots. WTI Crude oil broke through its 200-day moving average and is now a whisker from $80. I will be paying more attention to the threat of labor union strikes in the coming days and weeks. One strike here and one strike there (particularly in something as niche as Hollywood writers) doesn’t grab me from a purely macroeconomic sense. But four new strikes and a couple big ones (like, you know, the UAW), and I do wonder what kind of impact it may have on select companies and sectors. Off we go … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3O7FRWJ I am back in New York City after a few days working from my house in East Hampton and ready for a hot and humid week in the concrete jungle. Office needs and speaking engagements didn’t allow me too much time at our Hamptons home this summer but I do enjoy being here in the city even in my least favorite time of the year weather-wise (I will take the snow storm winters over the oppressive heat any day!). To see New York this crowded and normal after what I observed in the depths of COVID is a true blessing (I was here throughout summer of 2020 when it was a real ghost town). It will be a busy and lively week in our Manhattan office and I am excited. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3NZaBt7 Bring up the issue of “off-shoring” American manufacturing and you will get a wide variety of responses, many of them highly emotional. Today’s vernacular talks about “onshoring” or “re-shoring” or “near-shoring” – various synonyms or adjacent concepts to the idea of reversing certain trends of globalization, primarily the ones dealing with American activities in manufacturing and the supply chain. As is the case with almost every topic I could ever address these days, the subject is complex, requires nuance, and doesn’t come close to one of the two simplistic boxes we are supposed to fit all of our thinking and analysis into. My interest in this Dividend Cafe is less political and more economic. It is less about making a statement and more about doing some analysis. It is less about finding a campaign message and more about finding an investment thesis. So to those ends, we work. Let’s talk about expectations for America’s supply chain management in the years ahead. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/44yThlA It’s hard for contrarians to like some of the sentiment out there, with “bulls” at their highest level since April of 2021 and bears at their lowest level since June of 2021. The greed/fear index is tilted way towards the “greed” side of things and while it feels good to some, we like it the other way. Earnings season has started off well across the market, broadly speaking, but Tesla and Netflix were the first two mega-cap “name brand” companies to buck that trend this season, getting hit hard today (though still way, way up on the year). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4796XFZ David Bahnsen is traveling today and I, Trevor Cummings, will be filling in to provide you with the daily happenings around markets on this beautiful summer day. The market hit a 52-week high, the Dow is on its longest win streak (8 consecutive days) since September 2019, headlines were captivated by a slew of corporate earnings reports, we have new housing starts data, and of course the best part – Ask David. Please join us for all of this and much more. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3DhRwgD After crickets last night in futures, we opened up nicely on the day right out of the gate and continued to trade higher in both stocks and bonds throughout the entire session closing just off the highs. For all those waiting for the data or news indicating some recession shoe to drop we just aren’t seeing it and flows are quietly but steadily moving more towards risk assets with short positions covering. Its still early innings in earnings season with only about 9% of companies reporting so far, but with the majority of the largest banks out and beating expectations, a common theme: resiliency in the US consumer offsetting the negative affect of yield curve inversion on net interest margins. Also of note, high yield bond spreads are at the lowest level in over a year at 380 wide, a full 100bps lower than they were at the start of the last recession in comparison. So there you have it, markets remain resilient, and are now up 27% from the October lows, and we continue to climb this wall of worry in another heavily doubted equity bull market. Check out the podcast video today for more color on my resiliency theme and more. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Q15Bql Economic Front One of the economists I read every day who has been screaming non-stop for 18 months now that we are entering a recession sent a “reminder” email this morning that we are “still likely” to enter a recession. And maybe we are. First of all, broken clocks and all that stuff. But secondly, I think the question about if and when we enter a recession now misses the point. Short term, these people obviously don’t know. Additionally, no one knows what it would mean to markets if we did. No one. But longer term, we don’t need to know if there is a Q4 2023 or a Q1 2024 recession to know that we do face significant excessive indebtedness that matters for the next 10, 20, 30 years. I remain mystified by why these chicken littles can’t focus on a long term reality we do know versus a short term reality we do not. Consumer confidence jumped to 72.6 from 64.4 last month in the latest University of Michigan Consumer Confidence survey. This is the highest since September of 2021. Current conditions and expectations were both higher. Two quick caveats: (a) I have always found consumer confidence to be worthless; (2) Pre-COVID it was at 101, so putting the index in perspective, it is ahead of expectations, ahead of recent prints, and yet well below prior level. China’s Q2 GDP growth missed expectations, coming in at +6.3% year-over-year but slowing to just 0.8% from Q1’s growth rate (which had been +2.2%(, which was a surprise. Retail sales are not huge, capex is muted (as their property sector stumbles), and youth unemployment is over 21%. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3JYQSbA I am writing this week’s Dividend Cafe from Reagan International Airport in Washington DC. I recorded the video and podcast from my hotel room last night. I am soon departing for Memphis, TN where I am speaking at a conference Friday and Saturday before returning to New York. I was in DC to speak to a very large group of college students at George Mason University on free market economics. I had taken the train in to DC yesterday from New York after my flight to DC on Wednesday got cancelled just minutes after speaking to a symposium in south Orange County on the ESG investing movement (you can guess what perspective I brought to the subject). I made it to that conference after having a flight from New York Monday sit on the tarmac for four hours waiting for fuel. So from New York to California back to New York to Washington DC to Memphis then back to New York again, all in six days. It’s been a week. In the meantime, I scrapped plans for a Dividend Cafe on plans for the American supply chain and what those changes may mean for the American economy, and instead have elected to do a refresher on dividend growth. I plan to do a “dividend growth” focused Dividend Cafe once a quarter, and this seemed like a pretty good day to do it. Not to brag or anything, but I can write a Dividend Cafe about dividend growth quite intuitively (which I guess bragging about that would be like bragging about one’s speech and debate achievements in high school to the football team, which I will just anecdotally mention is not as cool a thing to do as it may sound). Dividend growth is, after all, the very end to which we work. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com